Go Cashless

Ritesh Sharma, 30-year-old research scholar at University of Rajasthan, downloaded mobile wallet Paytm on November 9, a day after Prime Minister Narendra Modi, through a television address to the nation, declared high-denomination banknotes of Rs 500 and Rs 1,000 as illegal tenders.

Mobile wallets are apps that allow people to load and transfer money electronically using their smartphones.

He had never used Paytm, or any other mobile wallet, for that matter, before he decided to try out Paytm. The same day, Hindustan Times, the newspaper that he reads, carried two full pages of Paytm’s advertisement in which the company congratulated the prime minister for taking the “boldest step in the financial history of India”. There were two more pages of advertisement – of Freecharge, another mobile wallet. The next day, on November 10, there were again four pages of advertisements in the newspaper, two each of Paytm and MobiKwik.

It was clear that the mobile wallet companies wanted to make the most of demonetization, the economic term for withdrawing currency.

Ritesh isn’t alone – Paytm, Indian’s largest mobile payment company with 150 million users, says it has seen a 700% increase in overall traffic and a 300% hike in the number of download with daily transaction touching 5 million. MobiKwik, which has 40 million users, is claiming 40% more downloads after demonetization.

Many youths in urban India are already hopped on to the cashless transaction bandwagon.

Cashless economy

The government is looking to make India a cashless economy. As of now, according to a report in Hindustan Times quoting Mastercard Advisors, only 2% transactions in the country are cashless, compared to 61% in Singapore, 60% in The Netherlands and 59% in France and Sweden.

Reserve Bank of India (RBI) figures for July 2016 show that there are 697.2 million debit and 25.9 million credit cards in India but the number does not equal number of individuals holding these cards. Urban Indians have multiple cards and the trend is now seen in rural areas as well. Moreover, the cards are used for three primary purposes – withdrawing money from ATMs, making online payments and swiping for purchases or payment at point of sale (PoS) terminals at merchant outlets such as shops, restaurant and fuel pumps.

In July this year, 881 million transactions were made using debit cards, out of these, 92% were cash withdrawals from ATMs despite there being just 200,000 ATMs compared to 1.45 million PoS terminals. India needs more ATMs – according to the IMF Financial Access Survey, 2016, India has mere 19.71 ATMs per 100,000 adults, compared to 254.13 in China and 220.52 in Canada.

This explains why Indian government is pushing for cashless economy. Cash facilitates drug trafficking, human trafficking, extortion, money laundering and illegal immigration. In a cashless society, people are forced to keep savings in banks.

In order to boost cashless payments, government has withdrawn surcharge, service charge, convenience fee on cards and digital payments and there are no extra charges on train ticket booked on IRCTC website or on payment of water, telephone and electricity bills.

Digital payment revolution

The government is pushing it and mobile payment firms and banks are encouraging people to go cashless by using online banking and mobile apps services. Financial technology firms are seeing the rupee ban as a start of a digital payment revolution in the country. What is fuelling this optimism is that India is the second largest market for smartphones behind China. India has more than 1 billion mobile subscribers, a quarter with smartphones, according to a report by Google India and Boston Consulting Group. The report predicts that smartphone users in India will be 520 million by year 2020.

This has coincided with a rapid rise in internet users. The country has more than 450 million internet users, a number expected to touch 700 million by 2020.

There are more than 100 million wallet users in India and the market is projected to reach $6.6 billion by 2020. More and more people are using mobile wallets because they allow users to instantly send money, pay bills, recharge mobiles, book movie tickets, send physical and e-gifts both online and offline. You don’t need to go through stringent KYC norms for mobile wallets and the platform has simple and convenient user interface.

There are four kinds of wallets in India. Open wallets, which allow one to buy goods and services, withdraw cash at ATMs or banks and transfer funds. An example of this is Vodafone’s m-pesa. Semi-open wallets, which don’t allow cash withdrawal, a customer has to spend what he loads. An example of this is Airtel Money. Closed wallets: In this, a certain amount of money is locked with the merchant in case of a cancellation or return of the order, or gift cards. Example: e-Commerce wallets. Semi-closed wallets: It does not allow cash withdrawals or redemption, but allows one to buy goods and services from listed merchants and perform financial services at listed locations. Example: Paytm

New e-payment method

The government recently made unified payment interface (UPI), an improved version of IMPS with only requirements being a bank account and a smartphone, operational following approval from the RBI. Banks have installed UPI app on Google Play Store. Most leading banks such as ICICI Bank, Axis Bank, Punjab National Bank, Union Bank of India have tied up with NPCI for the UPI service.

How to use UPI: Once a person registers for UPI with their bank, a unique ‘virtual address’ will be created, which is mapped with their mobile phone. To initiate the payment, UPI invokes this virtual identity of the beneficiary and transfers money in real-time. UPI will allow a customer to have multiple virtual addresses for multiple accounts in various banks. In order to ensure privacy of customer’s data, there is no account number mapper anywhere other than the customer’s own bank. UPI can potentially eliminate the need for maintaining a mobile wallet, as this ‘virtual address’ is not limited only to individuals. This is a significant step towards moving into a cashless economy.